What is Merchant Cash Advance Consolidation?

Chris Curtin

2 years ago

Is a Merchant Cash Advance Consolidation the Answer to Your Business Cash Flow Issues?

It starts with a small merchant cash advance, which leads to another and then another until before you realize it, all of your business credit card sales are going towards paying off these debts. This practice of stacking merchant cash advance loans – or ACH – can quickly put your business into a downward spiral. One solution to help you get out of this cycle of business debt is a merchant cash advance consolidation.

What is a Merchant Cash Advance?

A business in need of quick working capital might look at a merchant cash advance for a cash-flow solution. So long as you have a merchant account and accept credit card payments, you could qualify for this type of small business cash advance. The merchant will loan you the money you need, and then accept repayments towards that loan through your credit card sales, virtually guaranteeing that you do not default. Of course, there will be interest and other fees deducted as well, but all of this will be bundled together into your payment plan.

Some businesses in dire need of working capital may commit to more than one of these types of business cash advance loans. This practice is known as stacking, and can cause the business to have to make daily repayments that they really cannot afford. In essence, the inflow of money can come to a near standstill if the business is one that relies heavily on credit card revenue to survive.

The Benefit of Merchant Cash Advance Consolidation

Merchant lenders like this type of business cash advance because the repayment is practically guaranteed through the business’ sales. If you were to consolidate these debts into one, the lender is still going to get their money back (and the fees they charged you) but the terms will be adjusted so that you are still able to collect on your daily sales receipts and keep a flow of cash running to your business.

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A debt consolidation loan for a business is not much different from one used for personal financial difficulties. You apply for a specialized lending product that details the extent of your business debt. Once approved for the loan, the new lender will pay off the existing merchant cash advance debts, essentially leaving you with only one payment to make, where before you had multiple. In most cases, even after interest rates and other fees are calculated, you will have more cash left over each month to work with. Moreover, when looked at over the long term, you will find that by consolidating those merchant cash advances, you have saved your business thousands of dollars.

The terms of a merchant cash advance include deducting a certain percentage of your money every day from your credit card sales. This can put you in a position of not earning enough to keep up with your expenses, especially once you have more than one of these types of cash advance. With a straightforward merchant cash advance consolidation, terms can be chosen that will still allow your business to move forward with enough working capital.

How Would Your Business Qualify for a Merchant Cash Advance Consolidation?

A reputable business lender would look at your business credit score, but they will also be interested in the amount of revenue your business is making, and how the merchant cash advances are adversely affecting your cash flow. They will then try and work with you to construct a repayment plan that you can meet easily without hurting your sales. If you are able to show that your business will still be sustainable with a merchant cash advance consolidation loan, then there is a good chance that you and your business can qualify for one.

If you find that you are continually in debt after having started on a cycle of merchant cash advances, it could be that you are overextended in credit, or that your business structure cannot withstand the loss of sales receipts that are common with this type of product.

In order to avoid losing your business altogether, meet with an alternative business loan provider like Paragon Financial to see what your options are and what types of loans you and your business could qualify for.